ASSOCHAM Predicts a Gold Price Increase for India

RAPAPORT... Gold prices in India may cross $550 (INR 30,000) per 10 grams during the June to August period, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). The price of gold for 10 grams today is about $530 (INR 28,900).

The price increase is expected due to a slowdown in inflows by foreign institutional investors (FIIs), rising inflation, rupee depreciation, growing signs of fatigue in the real estate sector and pent-up demand by jewelry manufacturers and traders in wake of India’s annual wedding and festive season, the industry body noted.

ASSOCHAM stated that India’s gold imports might also reach about 1,000 tonnes in the fiscal year that ends in March 2013, up from about 933 tonnes in 2012 and its price might touch $643 (INR35,000) per 10 grams by the turn of this year.

D.S. Rawat, ASSOCHAM’s secretary general said that lack of clarity on tax implications has led to massive slump in demand from FIIs, which has compelled investors to move out from capital and commodity markets and invest in bullion, both cash and exchange traded funds (ETFs), to hedge against inflation and still earn high yields.

“Besides, a weakening rupee against the dollar due to trade imbalance together with soaring current account deficit, slowing exports on account of falling growth in the U.S. and euro-zone and aforesaid reasons will lead to upwards trend of gold prices,” Rawat explained.

He added that the annual festive and the wedding season is likely to swell demand for gold, which will fuel sales of jewelry and drive up imports of the precious metal as the government has rolled back the 1 percent excise duty on gold jewelry. “Even the rural households who have received huge compensation from sale of land are investing heavily in gold considering it as the safest investment bet and its liquidity,” Rawat noted.

A three-week long strike by gold traders and jewelers together with a lean period in March and April resulted in a temporary lull vis-à-vis gold imports, which might have tanked significantly by over 50 percent, ASSOCHAM said. Considering that gold holds immense traditional value during the festive season and weddings in India, its imports will increase in all probability to meet the surging requirement during the months of June-August, it added.

“We might witness a surge in pre-bookings, buying by stockists and retailers, purchase of gold by consumers in terms of physical bars, coins, gold ETFs, rings and other jewelry with the onset of wedding season across the country,” Rawat said.

ASSOCHAM said that it interacted with about 200 goldsmiths, jewelry manufacturers and retail jewelers in Ahmedabad, Chennai, Delhi and Mumbai in the past three weeks to gauge trading sentiment for its prediction.